The thread that separated the market from a breakdown and a breakout finally snapped, as the indices broke out of its channel and started the next leg down. For the past two months the markets traded in a narrow channel, and finally, the bears were able to break what many pundits had thought was a bottom in this bear market.

The only reference at this point, is the lows in the S&P and NASDAQ that were established back in late 2002. That level is roughly 768 in the S&P, and if that level breaks, I would say we are undoubtedly heading toward something more than just a recession. We would be creating on a monthly chart a new low and a confirmed double-top. Not the best of chart pattern when you are looking at the long-term health of the stock market. I would expect that we'll see a lot of effort to hold these price levels, even though they are over five years old.

Here's the Nasdaq and S&P charts...